Positive sign of change

By Zhang Jianping | China Daily | Updated: 2019-03-15 09:15

New foreign investment law switches focus from management to promotion and protection

The Standing Committee of the National People's Congress in January reviewed a draft of the foreign investment law. The committee later made a decision to submit the draft to the second session of the 13th NPC for a third reading in March. The top legislature is set to vote on it today.

The move has drawn attention from both home and abroad, a reflection of the proposed law's significance, as in the country's opening-up process, foreign investment has become an important force promoting economic and social progress.

Once enacted, the law will replace the three existing laws on Chinese-foreign equity joint ventures, wholly foreign-owned enterprises and Chinese-foreign contractual joint ventures. These three foreign investment laws, adopted in the 1970s and 1980s, represent the management system for foreign investment in China at present.

By the end of November 2018, 950,000 foreign-invested enterprises had been established in China under these laws, with investment exceeding $2 trillion.

In 2018, 60,533 new enterprises (excluding banking, securities and insurance companies) were set up in China, with an investment of $135 billion.

But as the international economy undergoes profound changes, China needs to adopt new policies. So it is obvious that laws made over 30 years ago cannot meet the contemporary needs of foreign investors, nor meet China's need to build a new, open economic system.

So the introduction of the new foreign investment law shows China's commitment to further opening-up.

Compared with the 2015 draft, the law's current iteration has undergone tremendous change. And it aims high, shifting the focus of the foreign investment system from management to promotion and protection.

First, the new law has expanded the article on pre-establishment national treatment and the negative list for market access.

And through optimizing foreign investment promotion, protection and management, the draft also sets out to create a stable investment environment and encourage foreign investors to do more business in China.

It is therefore fair to say that the new draft has many advantages in the way it deals with pre-establishment national treatment, the negative list for market access, and the national security review system for foreign capital.

Pre-establishment national treatment refers to the equal treatment of foreign investors when their companies in China are being established and acquired, along with when they're expanding.

The negative list for market access clarifies the areas subject to special administrative measures, including restrictions and prohibited access to the market. Industries, fields and businesses that don't feature on the list are open for investment to all market players.

The national security review system for foreign capital refers to the "security review of foreign investment that may affect national security", indicating China will conduct a targeted review of foreign capital that may threaten its interests, rather than a large-scale, nonscreening review without focus.

These changes will deepen China's reform of its foreign investment management system, promote a fairer and more transparent market environment, and help China align with international economic and trade rules in response to globalization.

Second, the draft features 11 articles on investment promotion and seven on investment protection, which will give foreign investors and enterprises increased freedom and legal safeguards while doing business in China.

The draft also emphasizes the need to protect the intellectual property rights of foreign investors and enterprises, as well as the legitimate interests of intellectual property rights and related rights holders. And it outlines how administrative measures cannot be used to force the transfer of technologies.

This article is linked to the rules on intellectual property protection under the World Trade Organization framework, demonstrating China's determination to comply with international trade rules, promote the reform of intellectual property protection systems and strengthen intellectual property protection.

Third, the new law aims to simplify supervision on foreign investment, promote the unified management of domestic and foreign investment, and guarantee fair competition. The core of foreign investment management lies in not making exceptions for investment areas, other than those on the negative list.

Article 16, for example, stipulates that the State will guarantee foreign-funded enterprises' fair participation in government procurement, which reflects China's invitation to foreign-invested enterprises to participate in it. And it represents a change to the situation where these enterprises were often subject to intangible thresholds and were rejected from procurement processes.

The new draft will provide the legal basis and support for pilot free trade zones, as well as early and pilot implementations of free port construction. And it will also continually expand foreign capital market access, reduce restrictions on foreign investment, and add impetus to China's development and opening-up.

Together with domestic investors, the law enables pilot free trade zones to be both the innovation and growth points in a new round of reform and opening-up.

The new law also sends positive signals to foreign investors and enterprises, and encourages foreign investment in China. And it will help improve the business climate and build a fairer and more transparent environment for investment.

The new law will also play a constructive role in establishing reciprocal investment market access and investment protection treaties between China and other countries, as well as advance China's negotiations with other countries to sign free trade agreements.

The author is deputy director of the Expert Committee of the Chinese Academy of International Trade and Economic Cooperation, and director of China's Regional Economic Research Center. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.